ArbritrationRulings

HC finds no ground for interference with the arbitral award u/s 37 or 34 of Arbitration & Conciliation Act, hence dismisses the appeal

Deepak Kumar & Ors. vs. Manoj Gupta

HC dismisses the appeal against order of Single judge assailing the award of arbitrator finding no grounds to interfere with the order of the Single Judge; says the scope of judicial scrutiny by an appellate court under Section 37 of the Act is far more restricted than judicial review under Section 34 of the Act.

The present appeal in the matter of Deepak Kumar & Ors. (Appellants) V Manoj Gupta (Respondent) is filed to challenge the order passed by learned Single Judge of the Delhi High Court by which a petition under Section 34 of the Arbitration & Conciliation Act, 1996 (the Act) assailing the award passed by the Sole Arbitrator dated 15.02.2010 has been dismissed. The Arbitrator found that the collaboration agreement had been entered into in 1997 and the arbitration having been invoked in 2008, the claims were barred by limitation and therefore rejected the claims vide an award dated 15.02.2010. The learned Single Judge vide the impugned order upheld the award of the learned Arbitrator dated 15.02.2010.

HC examines the facts and submissions and notes that SC in the matter of National Insurance Company Ltd V Boghara Polyfac Pvt. Ltd (2009) 1 SCC  267 considered the earlier judgment in the case of SBP & Co. v. Patel Engineering Ltd. & Anr. (2005) 8 SCC 618 wherein below are the  three categories carved out  to be considered while deciding a petition under Section 11 of the Act :- 

1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

  1. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are: 

(a)  Whether the claim is a dead (long-barred) claim or a live claim.

(b)  Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

  1. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration.

(ii) Merits or any claim involved in the arbitration.” 

The facts of the present case falls under ‘Category II’ outlined under  SBP & Co. v. Patel Engineering Ltd. & Anr.. HC finds that the Hon’ble Supreme Court while dealing with the issues in category II held that if the issues fall in the second category and are raised in any application under Section 11 of the Act, the Chief Justice/his Designate may decide them or alternatively, he may leave these issues open, with a direction to the Arbitral Tribunal to decide the same.  In case, the Chief Justice/his Designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the said issue. HC further finds that the issue of limitation would clearly fall in category II and this issue, in view of the judgment of the Apex Court in National Insurance Company (Supra) could have been either decided by the Chief Justice/his Designate or could have been left to be decided by the Arbitral Tribunal.

HC observes that the petition under Section 11 of the Act, was disposed of vide order dated 07.08.2009 and a perusal of the order shows that the respondent had not appeared in the matter and the question of limitation was neither raised nor decided by the said order.  Since the Chief Justice had not decided the issue at that stage, it was obviously left to be decided by the Arbitral Tribunal. HC notes that after the sole arbitrator was appointed, the claim statement had been filed and the respondent challenged the jurisdiction of the Arbitrator by filing an application under Section 16 of the Act. HC further observes that it was held by the Arbitrator that the limitation for filing the claims was three years under Article 113 of the Schedule to the Limitation Act, 1963 and since the claims were filed almost 10 years after the right to sue had accrued to the claimants, they were barred by limitation and not maintainable. HC agrees with the observations of the Single Judge that a reading of the order dated 07.08.2009 shows that neither the question of limitation was raised at that stage nor was it decided and therefore, it has to be presumed that it was left to be decided by the Arbitral Tribunal. Further, once there was no express adjudication of the issue of limitation in the order appointing the Arbitrator, the Arbitral Tribunal had the powers to decide the issue of limitation. 

HC disagrees with the contention of the appellant that since there was no express direction by the Chief Justice at the time of appointment of the Arbitrator conferring powers on him to decide the issue of limitation, the Tribunal could not have gone into this issue and finds that the argument runs contrary to the observations of the Apex Court in the case of National Insurance Company (Supra). HC rejects the appellant’s contention that the claims were not time barred and observes that the learned Arbitrator has found as a matter of fact that the cause of action had arisen in 1999 and finds no reason to disturb this finding and further finds no fault can be found with the finding of the Arbitrator in view of Article 113 of the Schedule of the Limitation Act. 

HC agrees with the findings of the Single Judge regarding the issue of locus that Sh. Ranjit Singh was the brother of Sh. Attar Singh, who was a party to the collaboration agreement and who had collaborated even on behalf of Sh. Ranjit Singh.  Further the learned Single Judge has also observed that Sh. Ranjit Singh was a party in the arbitration proceedings as he was one of the claimants and therefore the locus could not be questioned. 

HC opines that the learned Single Judge has rightly dismissed the petition of the appellant upholding the award of the learned Tribunal and states that the scope of interference in the proceedings in an appeal filed under Section 37 of the Act is extremely limited as has been held by several judgments of the Apex Court as well as this Court.  The position of law stands crystallised that findings of fact and law of the Arbitral Tribunal/Arbitrator are ordinarily not amenable to interference under Section 34 or Section 37 and can only be interfered if they are perverse or contrary to the contractual terms. The Arbitrator is the final authority on facts as well as law.  The scope of judicial scrutiny by an appellate court under Section 37 of the Act is far more restricted than judicial review under Section 34 of the Act. 

HC places reliance on the judgement in McDermott International Inc. vs. Burn Standard Co. Ltd. (2006) 11 SCC 181, wherein it was held that,

“The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.” 

HC further relied on Associate Builders vs. Delhi Development Authority reported as (2015) 3 SCC 49, where the Supreme Court explained the scope of intervention in an appeal under Section 37 and stated that, 

“It must clearly be understood that when a court is applying the “public policy” test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.”

Hence HC finds no grounds for interfering with the impugned order passed by the learned Single Judge and dismisses the appeal.

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